http://dailyreckoning.com/Writers/Mogambo/DREssays/MG090707.html Subprime Meltdown Finally Affects Beer Drinkers <HR>"There are probably a lot of theories why St. Pete customers aren't going to restaurants to swill beer like they used to…sales may be down because 'people are consuming at home' because of 'declining real estate values'…" <HR> by The Mogambo Guru If you are one of the nervous people who have spent a lot of time tracking me down to get information about your investment in the Mogambo Super-Secret Hedge Fund (MS-SHF), you are wasting your time trying to get your money back…or what's left of your money back…or even finding out if there is even any money to get back. In fact, if there IS any money left, I will probably give it to myself as the bonus I deserve for hanging around here all day, listening to you stupid investors whining about how my incompetence means you "are ruined" and how you have "lost everything" and blah blah blah, like I care or something, and then I voluntarily compound my misery by going home at night to listen to my hateful little family saying the same thing, only using the term "sadistic, nasty psychopath" more often. I will give you no specific information regarding your money, or what country I have escaped to, or whether or not there are extradition treaties in effect here, but I will let you know that we stand by our press release, which said "MSSHF operating results are in line with industry standards and averages in terms of both Fund performance and general attitude of management towards moron investors." Most investors were happy with hearing that uplifting message (as it is nice to know that you are at least "average"!) until George Ure of UrbanSurvival.com revealed that "The data seems to suggest that out of about 10,000 hedge funds operating worldwide, some 30% of firms reportedly have losses of 40% in their portfolios." Yow! A 40% loss! Tired of pretending to be a foreigner and hanging up the phone on callers ("Mogambo him no live here! You go to hell now, okay, G.I.?"), I decide that it's time, once again, to visit the Mogambo Mailbox (MM) and perhaps answer emails from thoughtful readers who ask things like, "Dear Mogambo, Why is the cost of housing removed from the Consumer Price Index, which distorts inflation, or do you not even understand what I am talking about, you lowlife jerk?" I am proud to say that I actually DO know what you are talking about, you rude and hateful little bastard, and I am even more proud to present Robert Hardaway, who is a professor of law at the University of Denver Sturm College of Law, to tell how this started. He relates, "In 1983, the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country's economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent." Yikes! What to do, what to do, what to do whattodowhattodo? "The BLS's solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called 'Owner Equivalent Rent' component based on what a homeowner might 'rent' his house for." Hahaha! The government resorts to lying! "Wow! Why didn't we think of this before?" they are heard to ask among themselves. Fortunately for the government, it worked. "The result of this statistical sleight of hand was immediate and gratifying," Mr. Hardaway writes, "for the reported inflation index quickly dropped to 2 percent", down from the real, and horrifying, 15 percent, which was due "in part" to the drop in rents caused by speculators wanting to "offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals that pushed down the cost of renting a house or apartment." Hahaha! You can almost hear the contempt in his voice when he says, "While the BLS was correct in assuming that this statistical ruse would fool the average citizen into believing that inflation was only 2 percent (and therefore be willing to accept a meager 4 percent return on his bank savings), what is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the 'hormonal teenagers of the capital markets.'" Putting it all together, he concludes, "The present subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the 'benign' inflation figures reported over the last 10 years" were, (using my awesome editorial powers to insert my own words for special emphasis), "A big stinking load of lying crap by the corrupt Federal Reserve and the despicable government (except Ron Paul)." I think that there is a link between this inflationary monetary nonsense and the bad economic news that, as columnist Ernest Hooper reports in the St. Petersburg Times, a restaurant owner friend of his is saying that around this part of Florida the usually-slow summer business season, "is so bad this year that even beer distributors are noticing a difference." There are probably a lot of theories why St. Pete customers aren't going to restaurants to swill beer like they used to, and he cites a marketing director saying that beer sales may be down because "people are consuming at home" because of "declining real estate values and other economic factors." Hahaha! Gosh! Ya think so? Hahaha! Apparently they both think that we dummies who eat in restaurants are too stupid to notice the menu prices going up (or the portion size going down, or both) as inflation in labor (higher minimum wage), supplies and taxes are devouring the income statements of restaurants, who must raise prices and in turn devour the incomes of us patrons, or they think that we are too thick to understand the fact that our incomes with which to pay for our tasty menu selections are not going up and so it is stupid for us to go into a restaurant if we don't have any money, or that we failed to notice that their menu now indicates a charge of $6.95 for a lousy beer, when right down the street at Dangerous Dan's Dank And Dark Den Of Scandalous Iniquity you can, for three bucks cash, not only get a cold, frosty brew, but listen to a fantastic sound system played at high volume while watching attractive young ladies undulating and dancing around in their underwear, performing various gymnastic feats on a shiny brass pole, all thrown in for free! Three buck beer! So, the ball's in your court, restaurant owner! We are not here to argue the finer points of marketing, but neither Mr. Hardaway nor I bother to point out that nothing about inflation, or government lying about it, has changed to this very day, except to get worse, much worse, and that is why, as I never seem to tire of pointing out, "We are freaking doomed!" P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed. Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.
